Yahoo's Refocus Shows Progress

Every company that struggles inevitably reaches a stage in its life when managers introspectively ask: what kind of company are we? Yahoo (NASDAQ:YHOO) in the Carol Bartz era decided it’s a media company. The company wants to be at the center of people’s online lives.

For the last two quartersYahoo has trimmed costs and refocused to try and deliver that experience. The end is not yet within reach, but an apparently stabilizing ad market seems to be helping the cause.

Tuesday, Yahoo reported third quarter earnings up more than threefold over the same period last year. On revenue of $1.58b (down 12% year over year), Yahoo earned $186.1m or 13 cents a share.

The third consecutive double digit revenue decline was expected. The extent of earnings growth wasn’t.

Analysts projected Yahoo would post a result of 7 cents a share (Thomson Reuters). Whisper numbers set a target slightly higher. Yahoo surpassed both benchmarks with what appeared to be relative ease.

“We had a solid third quarter that signals our major businesses have stabilized,” Bartz said in a statement, adding “our execution is improving and we’re focused on what we do best.”

The company has hopes its search partnership with Microsoft will move forward lucratively. (Earlier this week the American Association of Advertising Agencies voiced its support of the pending deal and asked the Justice Department to approve it quickly. High profile advertising executives including the CEO’s of WPP, Interpublic and Omnicom reportedly cosigned that request)

An area to watch to gauge the health of the ad marketplace will be the performance of owned and operated sites in the coming quarter. In Q3, Yahoo’s owned and operated search revenue was down 19%. O & O Display Revenue was down 8%. These numbers matched more or less to expectations showing probable stability, but it’s not yet enough to support talk of a rebound.

Looking to the fourth quarter, Yahoo is projecing revenue in the range of $1.6 to $1.7b. Income from operations guidance is for $135 million to $155 million.

Yahoo’s results in detail, by the numbers, follow (for convenience, the company’s earnings slides (PDF) are embedded below the data):

REVENUE • Q3 GAAP revenues were $1.575 billion, down 12% from $1.786 billion year over year (Y/Y). The international segment contributed $432.2m to the total ($283 less TAC). • Revenue less Traffic Acquisition Costs (TAC) was $1.131, down 15% year over year and flat quarter over quarter. • Geographically segmented, the US Revenue less TAC came in at $848.5m, down 14% year over year and 2% quarter over quarter. International revenue less TAC at $283m was off 15% year over year but up 3% quarter over quarter

ADDITIONAL REVENUE BREAKDOWN • Total marketing services revenues were down 12% for the third quarter while fee revenues fell 11%. Owned and Operated - •At Owned and Operated sites, search revenue in Q3 was down 19% to$354m. Display advertising revenue was down 8% to $399m. Sequentially, display was up slight from $393m in Q2. Search was down a similar amount compared to the $359m reported in Q2.Affiliates - • Affiliate sites generated $526 million in revenue for Q3, down 6 percent from $561 million for the same period last year. Affiliate revenue was up slightly sequential, gaining from $520m reported in Q2.Fee Revenue- • Fees revenues were $198 million for Q3, down 11% from $224 million Y/Y. Sequentially, fee revenue inched up from $195m in Q2.

CASH FLOW • Operating cash flow from worldwide operating activities for Q3 was $384.5 million, down from $410.4 million Y/Y. • Free cash flow for Q3 was $258 million, up compared to $215 million for the same period of last year.

REGIONAL SEGMENTATION • United States GAAP revenues in Q3 were $1.143b down compared to $1.276 Y/Y. • International GAAP revenues were $432.2, down from $509. for the same period last year.

OTHER DATA • Yahoo closed Q3 with cash of $4.503b, up from $4.197 b inQ2. • Employee head count rose by 200 over Q2 to finish Q3 at 13,200. • Page views were up 5% year over year in Q3.